Sucampo Pharmaceuticals (NASDAQ:SCMP) has announced that its commercialization partner for Japan, Abbot Labs (NYSE:ABT), recorded the first sale in the country of Sucampo’s prescription treatment for chronic constipation, Amitiza, resulting in a $15M milestone payment to Sucampo. That $15M in cash is equivalent to $0.36 per share, an immediate addition to SCMP’s balance sheet that should, in theory, improve the stock’s value by roughly 8% from Monday’s close. Abbot has indicated in the past that a new chronic constipation agent could address a multi-hundred million dollar market opportunity in Japan, the world’s 3rd largest market for prescription drugs. Conservatively, we estimate a $100M market, and at an estimated 10% yield to Sucampo (Abbot buys Amitiza directly from Sucampo at a discount), Sucampo stands to earn roughly $10M annually. A 10% discount rate equates to $100M in additional, incremental value for SCMP’s market capitalization. SCMP has been trading just above its 52-week lows this month, and the stock stands to gain considerably on today’s news, particularly as the milestone payment is an immediate improvement to the balance sheet. The cash addition, plus the implications of Amitiza sales in Japan and the market opportunity for the drug, suggest upside for SCMP in the coming weeks. Coming off of its bottom this month, SCMP is poised to move higher into the new year as the company also expects Amitiza to receive approval for a third, and large, indication in the U.S.
New indication offers further upside. Amitiza is approved in the U.S. for the treatment of chronic idiopathic constipation (CIC) and irritable bowel syndrome with constipation (IBS-C), and Sucampo has partnered the product with Takeda for domestic commercialization. The FDA granted a Priority Review to Amitiza for a third potential indication, opioid induced constipation (OIC), which should receive an approval decision by the end of April. According to Sucampo, there are approximately 3 million patients in the U.S. on chronic opioid therapy, and roughly 80% experience opioid induced constipation. Assuming that Amitiza is used in just 10% of this population (annual cost/patient of ~$2,800 per year), this would translate into $675M in new sales of the drug. Amitiza is known to have some side effects that could limit the product from optimum market penetration, hence our conservative estimate. At an 18% royalty rate on sales, that equals $120M annually in additional Amitiza revenue for Sucampo. Given Sucampo’s $200M market capitalization, an OIC approval in late April could more than double the stock price.
Amitiza was launched two weeks ago in Japan, and we see no reason to believe that the launch ramp will not go smoothly. Abbot is responsible for all commercialization expenses in the Asian country, but aside from Amitiza sales, Sucampo will receive no future milestone payments under the current agreement. With Tuesday’s cash addition, and the implications of the Japanese market, we see a greater valuation based on financials alone. More importantly in the long-run, however, the potential for a new and lucrative indication in April offers significant upside for SCMP.
